As Morgan Stanley pointed out earlier, the entire market now revolves around the insanity of one man. Just one man. That insanity has just taken the 2 Year UST to a fresh all time low of 0.4066%, and gold to an all time high of $1,320. Once the record divergence between stocks and bonds collapses, it will be one for the generations. Too bad not many may be left. At least gold "bugs" will have the last laugh over the paper bugs before it all blows up.
ISM Misses: Prints 54.4, On Expectations Of 54.5, Previous 56.3, Huge Jump in Prices Paid As Inflation Collapses MarginsSubmitted by Tyler Durden on 10/01/2010 10:02 -0400
Worst ISM of 2010, propped by record high inventory index, as all other components plunge. The survey respondents say it all: "Business continues flat relative to prior month and is expected to remain flat. Commodities continue to be the main concern heading into 2011."; "Our business is softening due to seasonal considerations. Overall, our situation is much better than 2009."; "Customers seem to be pulling back on orders. I suspect that they are trying to reduce their inventory for the approaching year-end." (Transportation Equipment); "Strategic customers reducing order quantities." (Computer & Electronic Products)
Morgan Stanley Confirms Fed Has Rendered Fundamentals, Valuations And "Almost Everything Else" MeaninglessSubmitted by Tyler Durden on 10/01/2010 09:18 -0400
Jim Caron has some truly brilliant comments this morning which should be read by all who think they have any handle on the market: "The fixation on QE comes at a price. It is that interest rate volatility will rise due to the uncertainties surrounding QE. And since the performance of interest rates is closely tied to the performance of risky assets, including gold and the USD, then it follows that volatility in those assets may rise as well. Investment decisions across many asset classes today are tantamount to an educated guess on what the Fed decides to do regarding QE. In the near-term this trumps fundamentals, valuations and almost everything else. Thus the risk in the market is man-made, not freely determined by the market. In general, this is not a good thing because it may invite greater risks in the future...If the Fed does not follow through with QE as the market expects, then risky assets may suffer." To put it mildly...
Confused yet: a few days ago the Conference Board came out with a confidence number which was a massive miss, and which drove market higher on expectations of QE2. Today, to prove that nothing coming out of the government is even remotely credible anymore, the UMichigan Confidence index came at 68.2, beating expectations of 67.0, and compared to a previous read of 66.6. Once again, our condolences to all those who trade the candles in this joke passing for a market.
A Central Bank's Collapse Into Schizophrenia: The Complete Disconnect Between BOJ Monetary Policy And Economic AssessmentSubmitted by Tyler Durden on 10/01/2010 08:27 -0400
One of the more amusing side-effects of the Keynesian system's death throes are the ever greater disconnects between a central bank's lies about reality and its actions. In this case, there is likely no better recent example than the BOJ (our Fed has been less vocal in its minutes recently in extolling the virtues of the US economy, which is the primary reason why the only thing driving the market are expectations of the arrival of "QE the Saviour"). Goldman has compiled a handy table showing how beginning in September 2009 there has been a major divergence between the BOJ's economic assessment and actual policy decisions, confirming that a nation's central bank is nothing but a populist tool to preserve a political system, even as it acts completely in opposition to its convictions.
The BEA has released the August Personal Spending, Income and Savings data: in summary spending rose 0.4% on expectations of 0.3%, and 0.2% previously, income increased 0.5% vs a consensus of 0.3%, and 0.2% previously again. The reason for the biggest advance in income this year, "the resumption of extended and emergency unemployment benefits." It appears, the only way Americans can see their incomes now grow is when the goverment loosens the socialism spigot. Both the PCE core and deflator came as expected, at 0.1% and 1.5%, respectively. Finally, due to the relatively bigger growth in Income, the savings rate increased slightly from a previously revised 5.7% (5.9% before), to 5.8%. The Krugmanites out there will vomit all over this number, as the last thing, they will say, the economy needs is a consumer who is saving more just as the government's fiscal stimulus hands are tied, and the effects of the existing stimulus are now non-existent.
Former Goldman chief economist and current FRBNY and PPT President Bill Dudley has guaranteed QE2: "I conclude that further action is likely to be warranted unless the economic outlook evolves in a way that makes me more confident that we will see better outcomes for both employment and inflation before too long." Dudley's remarks demonstrate the wide opinion rift at the Fed, where those who don't feel like crucifying the dollar (Kocherlakota, Hoenig, Plosser) are directly faced with such middle class monsters as Dudley and the Doves (which does have a rockband like quality to it). Nobody should have any doubt as to which side will ultimately win this argument...
The perfectly inverse trade of dollar vs gold continues to reach new extremes. Earlier today, spot gold just hit a fresh all time high of $1,317, once again proving that all that inflection point chasers really have no idea what they are talking about, since gold is not trading based on some regression channel, but continues to be the only way to hedge central bank profligacy. It is stunning how many experts still don't get this. As long as daily news of currency intervention bombard Bloomberg terminals around the world, this trend won't end. And neither will the pain for the dollar, which as the attached heatmaps demonstrate has received another fresh round of pain, with the EURUSD hitting 1.3765, as Europe is once again caught in a quandary of how to best punish it own currency without setting off a fresh banking crisis (the whole rock and hard place thing). Yet someone who will certainly be forced to intervene soon or else risk loosing all control is the BOJ, whose currency is now back to pre-intervention levels. Total tally: global central banks have spent tens of billions to keep the dollar low, and have failed, while all Bernanke has had to do is threaten to print another trillion and succeeded.
- BOE won't extend or replace its special liquidity scheme when it expires in early 2012.
- China's Manufacturing expands at faster pace as recovery sustains momentum.
- Crude oil trades near highest in seven weeks on signs of improving demand.
- Ecuador declares state of emergency; dubs protests an attempted coup d'état.
- Geithner says no threat of trade war with China or world currency conflict.
- IMF warned that reducing budget deficits, is likely to cut growth and raise unemployment.
- India's manf activity expanded at a slower pace in September, at 55.1 vs. 57.2 in August.
- ISM-Chicago's business barometer climbed to 60.4 in Sept- beating all estimates.
- Japan Consumer prices fell 1% in August as Yen strengthens, Economy slows.
Charting Statistical Fraud At The BLS: 22 Out Of 23 Consecutive Upward Revisions In Initial Jobless ClaimsSubmitted by Tyler Durden on 09/30/2010 19:59 -0400
For all those who continue to doubt the statistically quetionable methods of our Labor Department, as well as for all others who mock those who doubt the veracity out of anything coming out of the BLS, the following chart should provide much needed closure. The top section of the chart below demonstrates weekly prior revisions in initial claims for all of 2010. Readers may be surprised to discover that beginning in April, of 2010, continuing through today, there have been 22 out of 23 consecutive upward prior weekly revisions! In other words, the BLS has a definitive mandate to underrepresent the "current" weekly data and to allow it to catch up with reality once it has become "prior", and thus no longer market moving, when in reality should the BLS present true data it would have likely missed estimates on more than half the occasions it has "beaten" and caused ridiculous market spikes like the one experienced earlier. Furthermore, combining all individual weekly data, demonstrates that the BLS has underrepresented initial claims by roughly 80,000 year to date. The chart pretty much leaves no room for doubt as to the BLS "trans-statistical" approach to quantifying data. As for the lower chart, it shows the same thing but with continuing claims, which have been revised upward pretty much consecutively for the entire year.
RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 01/10/10
Probably the most interesting thing in this week's Fed balance sheet update is that Treasurys held by the Fed are now $812 billion, an increase of $7 billion from the week before, which those who follow the FRBNY's almost daily POMO liquidity explosion know all too well. Indicatively, Japan owns $821 billion and China, $847 billion. We believe that within one week the Fed will surpass Japan as the second largest holder of Treasurys, and China, the currently top holder, in just over a month. Another notable item: Fed excess reserves were at $981 billion, a decline from $1.01 trillion at the beginning of the month, but most notably, in the past month this number hit a year low of $932 billion on September 15. One wonders just what securities the banks were buying up with these reserves? Keep in mind the stock market closed essentially at the level it hit on September 20, making one wonder just how much of a factor the nearly $80 billion decline in bank excess reserves in the first two weeks of the month may have been.
A few days ago, the FDIC, broke as ever, with a Deposit Insurance Fund that was well south of zero at last check, announced, with delightful irony, that it was expanding its insurance on non-interest bearing checking accounts from the current $250,000 to, well, infinity. As in there is no upper limit on how much the FDIC would insure - the fact that it has no money at the FDIC to begin with being completely irrelevant. That's right, the broke FDIC basically said that it would guarantee up to $480 billion currently sitting in US checking accounts between December 31, 2010 and December 31, 2012. Yet is this nothing less than another Volcker-inspired plan to get capital out of multi-trillion money market industry and into consumer hands via easily accessible transaction accounts, and to encourage spending on useless trinkets like iPads? This could very well be the case.
M2 continues its inexorable rise higher, and while by all indications the various shadow components of M3 are declining, the Fed and the banking system sure are doing everything in their power to reflate traditional monetary liabilities. In the week ended September 20, M2 rose to a fresh record of $8,712 trillion, even as M1 has declined marginally in recent weeks. This was the 11th sequential increase in M2, which in 2010 has increased by quarter of a trillion dollars. Yet this increase does nothing to offset the over $2 trillion decline in shadow banking liabilities through Q2 which we have discussed previously.